Higher education costs are at an all time high. Last year alone, 71% of students had an average student loan balance of $29,400 per borrower. If a student chooses a private university, those numbers will increase exponentially. As tuition costs rise, students, parents and grandparents are trying to figure out ways to lessen the burden and ensure that the cost of education is covered.
There are ways to make college affordable and accessible but it starts with some careful planning and discussions with your family. Here is how to get started with paying for college, to ensure your granddaughter is thinking more about her grades and not about tuition! Start Saving Now with a 529 Plan.A 529 plan is an education savings plan that can help your family set aside funds for college. It is called a 529 plan, based on the Internal Revenue Service (IRS) code, which helped create these plans in 1996. 529 plans vary from state to state, but the good news is that you can start a 529 plan in one state and use that money to attend a college out of state. The 529 plan offers special tax benefits to those who contribute. It’s important to do your research, compare plans, and figure out what plan is best for you. Starting a 529 plan is a great idea, as it is a low-maintenance way to save for college, and it offers tax benefits.
In addition, you are allowed to put large deposits into the plan and in general there are no income or age restrictions, so you don’t have to worry if you make too much or too little, or if you qualify.
Start a Conversation
When starting to save for college for your grandchildren, there are a lot of factors to consider. Knowing these factors upfront will help determine exactly how much money will be needed to attend college.
For example, it’s important to know if your granddaughter is intending on going to college in-state or out-of-state. The costs associated with tuition and room and board increase dramatically if a student decides to attend college out-of-state. Will they want to attend a public or private university? Public universities are often much more affordable than private universities, however some private universities have extensive financial aid assistance. What will there major be? Some majors require purchasing or borrowing a lot of equipment. Also, would they be willing to attend community college for the first two years? Community college can be a great way to cut costs and meet general education requirements.
It can be hard to know these answers, if you start saving when your grandchildren are young. But as they get older start asking critical questions that can inform your budget.
Budget for More
As your grandchildren get older and you understand their hopes and dreams of going to college, come up with a clear budget to help them attend debt free. Every year, keep economic inflation in mind and create a budget to help save for their tuition. As college costs are increasing, and it might be seventeen years until they attend college, budget for more. Consider adding additional money to the education savings plan for birthdays and Christmas. While most grandchildren won’t appreciate it at the time, they will be forever grateful for the opportunity to attend college and not be burdened by student loan debt.
Know Your Options
When planning for college, it’s important to be informed and know your options. Understand all of the terms within the various 529 savings plans. Start researching grants, scholarships, and student loans. The hope is to avoid student loans altogether, but it’s helpful to know what is out there should your grandchildren need some financial assistance.
In addition, cast a wide net for scholarships, grants, and other opportunities. As your grandchildren get older, encourage them to work part-time, or pursue a money making hobby like babysitting, to help pay for other college related expenses. This way you can help provide the majority of financial assistance for college, but also teach them the value of hard work, and working towards a goal.
When planning for something as important and life-changing as college, start early, have a conversation, and work together as a family to ensure your grandchildren are taken care of. Although the process can seem daunting, with some careful planning and persistence, college planning can be easy. Automate your savings and be clear about what you will provide. Using these tips will ensure that your grandchildren are taken care of and on a path to educational and financial success.
Grandaughter Already in College?
You can make a gift of a tuition, books, or room and board, and if you send it payable to the college and directly to the college, it does not count against the annual gift exclusion allowed under IRS rules.
